The problem with convert to cloud is that it would require every Xbox to go online in order to check with the mothership before running the game, even from a disk. Otherwise you'd be able to share the disk with offline users who could continue using the physical copy.
They had two choices:
Require an internet connection before running a game. (the 24 hour check)
They had two choices:
Require an internet connection before running a game. (the 24 hour check)
or
The disk must be present at all times.